China Court Applies AFSL to Override Foreign Choice-of-Law Clause

A Chinese court decision, given significant precedential weight by its publication by the Supreme People’s Court, held that the country's Anti-Foreign Sanctions Law (AFSL) overrides contractual choices of foreign law. The Shanghai Maritime Court awarded damages against a Singaporean shipping company that had returned a cargo shipment, citing US export control compliance risks. The defendant invoked the US sanctions status of the plaintiff’s Chinese parent company. Although the contract was between a Hong Kong entity and a Singaporean one and designated Singaporean law, the court ruled the AFSL applied because the breach was motivated by compliance with foreign sanctions targeting a Chinese entity. The decision significantly heightens risks for multinational companies, suggesting that standard choice-of-law and jurisdiction clauses may not shield them from liability in China for actions taken to comply with US or other foreign sanctions. Firms should urgently reassess compliance and dispute resolution strategies for all transactions with a potential nexus to China, even through non-sanctioned affiliates of sanctioned parties.